High Price Point: the incumbents generally enjoy high margins and distribution involves several middlemen — a structural mitigator to lower prices.

The first one of these says that the market must be big enough, and the next five are characteristics of markets open to disruption.

The only thing I would add is that the incumbents offer a ‘so-so’ product. That’s arguably captured in the limited brand allegiance point, and Alex goes on later to say that the seven companies he analysed all offer great customer experiences and have high Net Promoter Scores, showing the importance of offering great product. ‘Great product’ is a relative concept though and unless there’s space to be way better than the competition life will be difficult. That difference can be price point – e.g. Dollar Shave Club and Warby Parker – or it can be product quality – e.g. Frank & Oak and Harry’s.

Alex’s analysis ports well to the UK and Europe, and the biggest challenge we have from a venture perspective with many ecommerce ideas is potential market size. If a market is $2bn/£1.3bn in the US then if we pro-rata based on population is will be $400m/£265m here, which, depending on margins, is on the small side to build a £100m+ business. (10% net margin on a 10% market share yields profit of £2.65m – a good business, but probably not a £100m exit.)

Hence we either look for larger UK markets or the ability to expand internationally.

Alex Malorodov

Thank you for the kind words, Nic. Love what Forward Partners is doing, hope my post was of value to you guys.